"The dollar's ability to gain against this backdrop likely reflects positioning, with USD shorts having built up quickly in October according to our metrics," analysts at BNP Paribas wrote in a client note.

That has left the dollar increasingly less vulnerable to negative news and with more scope to rally if data begins to beat expectations again, they added.

Traders also said it is unlikely the dollar would react too negatively should the Fed choose to wait for more evidence of how badly Washington's budget battle hurt the U.S. economy before deciding on whether to reduce stimulus.

The dollar index has fallen about 1 percent this month, adding to a 2.3 percent slide in September.

One of the key beneficiaries of the dollar's decline has been the euro, which as recently as Friday hit its highest since November 2011 at $1.3833.

Reserve Bank of Australia Governor Glenn Stevens said it was likely the Aussie dollar would fall materially in the future given the country's declining terms of trade, a shift that would be welcomed by the country's exporters.

The Australian dollar fell 0.6 percent to $0.95. Last Wednesday, the Aussie hit $0.9758, its highest level since early June.